India Inc. is expected to report stable revenue growth in Q1 FY2026, supported by resilient domestic demand, according to ICRA. The rating agency, in a report, stated that while rural demand is expected to remain healthy, urban demand appears set to recover, supported by income tax relief and easing food inflation.

Nonetheless, ongoing geopolitical tensions continue to impact demand sentiments, especially for export-oriented sectors such as agrochemicals, textiles, auto and auto components, cut and polished diamonds, and IT services.

An analysis by ICRA showed that India Inc posted 7.6% year-on-year growth in revenue for the quarter ended March 2025. “Revenue growth was largely supported by consumer-oriented sectors (consumer durables, retail, hotels and airlines), telecom and capital goods, while sectors like iron and steel declined on a YoY basis amid lower realisations owing to weak global demand and cheaper imports from China,” it said adding sectors like oil & gas, shipping and port curtailed the sequential and YoY margin expansion to some extent on account of higher input costs and/or lower realisation.

ICRA further said that rural demand continued to witness improvement in Q4 FY2025. On a QoQ basis, the revenue growth remained modest at 6.2%, led by sluggish urban demand. ICRA expects the demand in consumption-oriented sectors to remain resilient owing to sizeable income-tax relief, monetary easing by the RBI, and the expectations of a moderation in food inflation.

The rating agency further said that India Inc’s operating profit margin in Q4 FY2025 improved by 63 basis points on a YoY basis and 41 bps on a sequential basis due to improved demand across sectors like power, airlines and real estate, coupled with moderation in input costs and operating leverage benefits.

Overall, the operating profit margin of India Inc hit 18.5% in Q4FY25 against 18.1% for the sequential quarter ended December 2024 and 17.8% in the corresponding quarter last year.

Going ahead, ICRA said that government spending, along with a pick-up in urban demand, will remain a key monitorable over the coming quarters. Further, India Inc.’s ability to navigate the uncertainty in macroeconomic and geopolitical environments remains critical.

“With the Monetary Policy Committee (MPC) upfronting the repo rate cut of 50 bps in the June 2025 policy (100 bps in total since February 2025), India Inc’s interest coverage is expected to improve to around 5.1-5.2 times in Q1 FY2026,” ICRA said.

The study on a sample set of 578 companies, excluding financial sector entities, showed that the total debt of India Inc stood at Rs 20.60 lakh crore in FY25 against Rs 20.16 lakh crore a year ago. The figure was at Rs 18.66 lakh crore in FY21.

“With inflationary pressures easing on earnings, in FY2025, India Inc was able to minimise a large increase in borrowing levels. Some sectors like power, iron & steel, oil and gas, pharma and sugar saw a rise in debt levels due to an increase in working capital intensity and debt-funded capex, whereas auto OEMs, telecom and construction sectors saw moderation in debt levels backed by robust cash generation,” ICRA said.